February 9, 1972
Mixed opinions were expressed recently by the directors of this Bank and of the Buffalo Branch as well as other local businessmen regarding the current economic situation. Most were disturbed by the implications of the President's budget message, but on balance felt that so far Phase II was having a beneficial effect on the economy; only scattered improvement was reported in the unemployment picture. In general, it was felt that the prospects for increased business outlays on plant and equipment had not materially improved over the recent past. However, the majority looked for increased inventory outlays, reflecting in good part a strengthening of consumer confidence, as reported by the retailers that were contacted. Most directors that expressed an opinion felt that the international currency realignment had not had, but eventually would have, a beneficial impact on the country's trade balance.
Concern, in varying degrees, was expressed over the President's recent budget message. All of the Buffalo Branch directors saw the deficit as adding to inflationary forces, although the majority felt that its likely stimulative effect on the economy would not be excessive. One of these directors, however, the Vice President of one of the largest up-state firms, saw a greater danger of over-stimulation from the projected deficit for fiscal 1973 than from the current year's deficit. The chairman of the board of a large New York City bank thought that the $87 billion of deficits compiled in three years could signal that huge deficits were becoming a fiscal "way of life," which would make inflation difficult to check while other directors also were concerned over current fiscal policy. Among the local businessmen contacted for an opinion on this issue, the senior partner of a leading accounting firm felt that the "last-minute disclosure" of the size of the projected deficit has shaken public confidence, and had left many businessmen "dismayed." A leading New York City banker doubted that expenditures and the deficit would reach projected levels, but in any event felt that the release of these figures had generated uncertainty in the financial markets.
Sentiments were mixed regarding the effectiveness of Phase II. On balance the respondents felt that it was having a constructive effect. Most regarded the Price Commission as being more effective than the Pay Board in reducing inflationary pressures, but a member expressed the opinion that the Pay Board has had some psychological effect in reducing the size, as well as the number, of wage increases demands, a fact which is not reflected in statistics it releases. Among the specific comments made, the President of a large copper firm said that the Pay Board "hasn't demonstrated that it had things under control," a feeling that was shared by the chairman of the board of a large New York City bank. Several of the Buffalo Branch directors pointed to apparent inequities in the Board's rulings, which they felt resulted from the use of different standards for particular labor groups. On the other hand, the president of a large liquor manufacturing firm reported that the "Board had been a definite factor" in keeping down the wage increases for his firm in a recent wage settlement, while a Rochester businessman noted that fewer of his employees have been asking individually for wage increases.
Regarding the employment situation, the vice-president of one of the largest up-state firms expected the increases in hours worked to foreshadow additional hirings. The job situation in Rochester was reported to have shown a steady improvement since last May. Other directors and other business leaders, however, were unable to detect an improvement in the current unemployment picture.
With respect to outlays for plant and equipment, the directors and other business leaders expressing an opinion on this subject continued to look for little change, in good part because of the high rate of unused capacity.
The outlook for increased inventory outlays, however, seems to have improved on balance. Buffalo Branch directors shared a feeling expressed by one of them that "inventory downward adjustments have bottomed out." Moreover, the local retailers that were contacted, while reporting that January sales were below expectation in the New York City area, in general looked for a good year and indicated that they were planning to increase their inventories accordingly. A senior executive of New York City's largest department store was most optimistic, and looked for a "very very" good year.
Concerning the impact of the international currency realignments, the Buffalo Branch directors felt these measures were a step in the right direction but that it was still too early to detect signs of an improvement in the competitive position of United States goods in world markets. The chairman of the board of a large New York City bank expected no real change in the trade balance before 1972. Other respondents felt that the realignments would ultimately have a favorable impact on their firms competitive positions, but it was noted that they did not seem to have much effect on imports from Japan.